JOI:How ASRS is set up? What are your typical numbers?Underwood:
JOI:How well-funded are you right now?
Underwood: We're in the high seventies in terms of the funding ratio percentage. Another way of saying it is that we're a good house in a bad neighborhood:The plan is very liquid, with 35-year horizons, so we're comfortable with that level.
JOI:Would you talk a little about ASRS' decision to seed three of BlackRock's iShares?
Underwood: That actually was part of a collaborative process that we've been working on for about three years. The idea was to be able to create some type of an overlay program to enable us to adjust the factor-risk exposure of our combined equity set.
It's less about alternative beta, although we do have a strong appreciation of it. It's more that these tools (i.e., the risk-factor ETFs ) are a means to an end.
We have long used a Barra analytics platform and we could see what our exposures across our total public equities component looked like in terms of risk factors such as momentum, size, quality, leverage and so forth. We were looking at ways to physically adjust the portfolio to align with these risk factors appropriately. But it becomes expensive reallocating assets, and it takes time to do that. And wrapped around that is the relative lower persistency of active strategies versus passive or beta strategies. The interest in ETFs on our part came as a result of realizing that by one, or just a few, trades, we could conceivably adjust this exposure in order to neutralize the structural active factor risk building up systematically across the total equities component.
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